PACIFIC CENTURY INSURANCE CO. LTD. v. THE INSURANCE CLAIMS COMPLAINTS BUREAU

HCAL 8/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO. 8 OF 1999

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J U D G M E N T

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1. The Applicant insurance company ('Pacific Century') seeks by way of judicial review to challenge an award made against it by the Respondent, The Insurance Claims Complaints Bureau ('the Bureau').

2. Two questions arise to be decided in this judgment. First, has the Court jurisdiction to deal with awards made by the Bureau? Second, if the Bureau is amenable to judicial review, was the decision to make the award against Pacific Century so flawed that it should be quashed?

3. Before turning to examine each question, something must be said of the manner in which the award itself came to be made by the Bureau.

The award

4. In April 1997, Madam Tsoi Hau Ling, an usher in a seafood restaurant, took out a policy of accident insurance with Pacific Century. Ten months later, in February 1998, while at work, she slipped and fell, injuring her back. She was admitted to hospital where she spent several days. It appears that the injury left her with a degree of residual pain, a fact accepted by the Employees' Compensation Division of the Labour Department which assessed compensation payable to Madam Tsoi in a sum of HK$15,000. Although it was never disputed that Madam Tsoi had sustained an accidental injury to her back, the doctors who treated her found no external evidence of that injury: no bleeding, contusions, bruising or the like.

5. Regrettably for Madam Tsoi, her policy of accident insurance with Pacific Century restricted claims for compensation to those where the injury was evidenced by some external manifestation. Accordingly, when in February 1998 she submitted a claim in terms of her policy to Pacific Insurance that claim was rejected.

6. In rejecting the claim, Pacific Century relied upon the definition of injury contained in its policy of insurance. That definition appeared directly beneath the clause conferring the general benefit of compensation in case of injury. It was printed clearly, in lettering that could not be criticised for its size, and read:

"Injury - means bodily injury effected directly and independently of all other causes by accident of which there is evidence of a visible contusion or wound on the exterior of the body except in the case of drowning or internal injury revealed by autopsy"

7. Being aggrieved by the rejection of her claim, Madam Tsoi lodged a complaint with the Bureau. The Bureau had the power to entertain her complaint as Pacific Century had become a member of the Bureau in 1994 and to this day remains a member. In accordance with its internal procedures, the Bureau first referred the complaint to one of its appointed secretaries for review. The results of that review were contained in a letter that read:

"The contract contains a typical "Injury" definition which requires the claim to be evidenced by a visible contusion on the exterior of the body. Since Ruttonjee Hospital stated on the claim form that there is no external and visible evidence of contusion, the claim does not fulfil the definition if consideration is exclusively based on the contract wordings.

However, it is also stated by the hospital that the insured's medical condition is contributed by an accident. We regard that the main purpose of the evidence of external wound requirement is to protect insurers from sham accident claims. Thus we are of the opinion that if the insured can provide more supportive evidence (such as workman compensation assessment) to show beyond reasonable doubt that the case was directly caused by an accident, a more lenient consideration can be given." [my emphasis]

8. This recommendation was not accepted by Pacific Century and, as a result, Madam Tsoi's complaint was referred to the Complaints Board. This Board, constituted in terms of the Bureau's Articles of Association, adjudicated upon matters that could not be settled in an administrative fashion and had the power to make awards of up to HK$600,000. The Board sat as a tribunal of three persons, one of whom - the Chairman - had to be legally qualified. Any party appearing before the Board was entitled to employ legal representation although it appears that no power was vested in the Board to award costs.

9. The Bureau's Articles of Association state that decisions of the Complaints Board are final and binding on its members but do not affect the rights of a dissatisfied complainant to pursue his or her legal remedies through the courts. The members - all authorised providers of insurance - are bound because they have covenanted to be so bound. In this regard the Articles state:

"9. Every Member shall upon being admitted as a member of the Bureau ... be bound to observe and comply with all the provisions of the Memorandum and Articles of Association, all rules and by-laws of the Bureau set out by the General Committee and approved or ratified by the Members in General Meeting and the Statements of Practice issued by the Bureau.

10. Every Member shall upon being admitted as a Member of the Bureau ... be deemed to have covenanted with the Bureau to be bound by and to promptly pay each and every award made against it by the Complaints Board which shall be enforceable against the Member, its liquidator, trustee in bankruptcy and receiver, as the case may be."

10. In late October 1998, the Complaints Board considered Madam Tsoi's complaint and concluded that she was entitled to compensation in a sum of US$2,378.57. By letter dated 5th November 1998 it advised Pacific Century of its decision. That letter read:

"The Board studied the available documents and agreed with the Honorary Secretary's opinion that the main purpose of the evidence of external wound requirement was to protect the insurers from sham accident claims. Having considered the Workman Compensation Assessment of Madam Tsoi and the fact that there was no previous record of her back problem, the Board concluded that Madam Tsoi's injury was genuinely caused by accident. It therefore concluded that Madam Tsoi should be entitled to the Temporary Total Disability Benefit under her [policy of insurance]."

11. Pacific Century requested the Complaints Board to review its decision, expressing its dissatisfaction with the decision in the following terms:

"... the reasoning set forth in the said letter is wrong in law in that it fails to take into account the wording of the policy provisions and that it takes into account irrelevant matters. The material policy provisions expressly provided that there must be "evidence of a visible contusion or wound on the exterior of the body" and it is plainly wrong to suggest that such evidence is not necessary. The fact that there was a back problem "genuinely caused by accident" is immaterial as the policy provisions require evidence of visible contusion or wound. It is submitted that both policy owners and us are bound by the policy provisions and it is further submitted that if policy provisions are disregarded and/or twisted, the whole foundation of the legal relationship will fall apart. It will also open a floodgate of having to argue each and every case on the purported spirit of each policy instead of the express agreement between the parties ..."

12. The Complaints Board replied to the effect that its decision was final. Pacific Century therefore paid the sum awarded to Madam Tsoi under protest and in January of this year instituted judicial review proceedings seeking an order of certiorari to quash the decision and an order of mandamus obliging the Complaints Board to reconsider the matter in accordance with the law.

Is the Bureau susceptible to judicial review?

13. The Bureau, which was incorporated in February 1990 as a limited liability company, was essentially a creation of the Hong Kong insurance industry, formed in order to provide a self-regulatory mechanism for arbitrating complaints related to personal insurance. Membership of the Bureau is restricted to 'individuals, firms, companies or bodies corporate' carrying an insurance business in Hong Kong and duly authorised to do so in terms of the Insurance Companies Ordinance, Cap.41. Membership, in terms of the Articles of Association, is voluntary and may be terminated upon three months notice. In a paper put out by the Bureau in April 1996, the hope was expressed that membership would be recognised by the public as being 'a guarantee of integrity, competence and high standards of service'.

14. As already indicated, the Bureau's Articles of Association, which provided for an arbitration and adjudication process in order to settle complaints, bound its members to honour awards made against it by the Bureau's Complaints Board. That Pacific Century agreed to be so bound is apparent from its written application for membership signed by its Chief Executive and dated 24th May 1994. That form contains the following wording:

"In the event of being admitted to membership of the Insurance Claims Complaints Bureau, I, on behalf of the Company, undertake

1) to abide by and adhere to the Memorandum and Articles of Association of the Insurance Claims Complaints Bureau for the time being in force ..."

15. In its genesis the powers of the Bureau were not derived from statute but depended on consent; that is, the consent of its members to be bound by its Memorandum and Articles of Association. The Bureau has never exercised powers over non-members. Complainants who avail themselves of its facilities have always been able to chose to abide by the outcome or reject it and proceed to litigation through the courts.

16. In my opinion, in its origins, the Bureau could therefore accurately be described as a contractually based body, with no statutory underpinning, created by the insurance industry to offer both its members and those members of the public who held policies of personal insurance a quick, cheap method of self-regulation as a preferred alternative to the rigidities of traditional litigation. In so doing the Bureau was promoting the image of the insurance industry in the public eye, resting jurisdiction with private arbiters who had knowledge of the industry and attempting to ensure good industry practice. In short, I believe it was a purely domestic body offering the services of private arbitration, the results of which would be binding on its members (for their collective, greater good) but not on the public.

17. By April 1997, however, when Madam Tsoi entered into her policy of insurance with Pacific Century, it is accepted that government had, to put it neutrally, taken an interest in the Bureau. To explain how this came about, reference must be made to the Insurance Companies Ordinance, Cap. 41. That Ordinance has created a public body called the Insurance Authority. Section 41A describes the principal function of the Insurance Authority in the following terms; namely:

"... to regulate and supervise the insurance industry for the promotion of the general stability of the insurance industry and for the protection of existing and potential policy holders."

18. The section continues by saying that, without limiting the generality of this principal function, the Insurance Authority shall have a number of other specified functions. These specified functions include those which will -

"(c) promote and encourage proper standards of conduct and sound and prudent business practices amongst insurers

and

(e) promote and develop self-regulation by market and professional bodies of the insurance industry"

19. Accordingly, as part of its supervisory function, the Insurance Authority has been given the responsibility of promoting proper standards of professional conduct by insurers and in this endeavour has been given the power to 'promote and develop' self-regulation by Hong Hong's insurance industry.

20. As an integral part of the insurance industry's existing self-regulatory structure, it is clear that the Bureau sought to co-operate with the Insurance Authority. This appears from a paper dated 25th April 1996 presented by the Chairman of the Bureau, under the heading - 'The Way Forward' - which read:

"At the request of the Bureau, the Insurance Authority is considering a requirement for all authorised insurers to join the Bureau, in order to ensure better protection of policyholders." [my emphasis]

21. It is equally apparent that in the same year the Insurance Authority acceded to this request. In a letter dated 29th October 1999, written in knowledge of the present judicial review proceedings, an officer of the Authority confirmed the adoption of the policy by saying:

"I took over the present position in around mid 1996 as the official for handling applications for authorization by insurers. So far as I know, since February or March 1996, it has become the Insurance Authority's policy that authorization of an insurer will be given subject to a condition that the insurer shall apply to the Insurance Claims Complaints Bureau ("the Bureau") for membership if it carries on personal insurance business and remain as the Bureau's member for so long as it continues to carry on such business. There is no such condition imposed on those insurers authorized before introduction of the policy and the Insurance Authority has not taken any further action on them.

22. A sample letter granting authority to a new insurer to carry on business in Hong Kong was placed into evidence. That letter detailed the conditions under which the authorization was granted which included the following:

(d) that you shall, forthwith upon the authorization, apply to The Insurance Claims Complaints Bureau ("ICCB") for membership of the ICCB if the insurance business to be carried on by you in Hong Kong falls within the scope of the ICCB; and

(e) that you shall remain as a member of the ICCB until you cease to carry on insurance business in Hong Kong which falls within the scope of the ICCB.

23. It has not, therefore, been disputed that since 1996 the Insurance Authority has adopted a consistent policy of requiring all new insurers to join and remain a member of the Bureau. Section 6 of the Insurance Companies Ordinance prohibits the carrying on of insurance business unless duly authorized to do so by the Insurance Authority. Section 8 of the Ordinance empowers the Authority to impose conditions on the granting of any such authority. Accordingly, in terms of statute, new insurers have no choice in the matter. They are compelled to join the Bureau and submit to its rules which means submitting, without recourse to appeal, to any awards made against it by the Bureau's Complaints Board.

24. In pursuance of its policy, it appears that early this year the Insurance Authority carried out a survey of the Bureau's membership to discover if any insurers, already authorized to carry on business, had chosen not to join the Bureau. The Authority discovered that 'one or two' had chosen not to become members. The Authority contacted these insurers, entered into discussions with them and encouraged them to join. The insurers agreed and have all since become members.

25. But what of insurers who were duly authorized before the policy came into being and who are members of the Bureau, are they in any way restrained now from ceasing their membership? Happily, none have chosen that option. But it appears that there is no stated restraint. Quite sensibly, in my opinion, the Insurance Authority has to date seen no reason to seek a way to compel existing members to remain members when there is no evidence that any of them wish to resign. The Insurance Authority has stated unequivocally, however, that should there be a cessation of membership, it will have to consider remedial steps. This appears in the letter of 20th October 1999 to which I have made reference which states that the Authority 'will consider what measures should be taken to deal with the situation'. In my judgment, having regard to the history of the matter, it must from the outset of the policy have been apparent to existing members that the Authority sought their continued membership and that, if they chose to leave, that would precipitate some unspecified action on the part of the Authority to ensure that authorized insurers would not be able to carry on business as non-members and thereby operate outside of the scheme.

26. Clearly, therefore, in my judgment, since 1996 the Insurance Authority, a public office created by statute, has been consistently pursuing a lawful (and many would say, laudible) policy of ensuring that all insurers submit themselves to the jurisdiction of the Bureau. The Authority had not chosen to create its own statutory body with powers similar to the Bureau. There was simply no need to do so, not when there already existed a competent, professional body set up by the insurance industry itself. But has the creation and pursuance of this policy by the Insurance Authority so coloured the powers of the Bureau as to make it susceptible to the supervisory jurisdiction of this Court? In this regard, I have been referred to a number of authorities relied on as identifying the type of bodies and their decisions which are susceptible to judicial review. I shall refer to those I consider to be of direct pertinence.

A consideration of the authorities

27. In R v. Criminal Injuries Compensation Board ex parte Lain [1967] 2 QB 864 Lord Parker C.J. made certain general observations which have guided subsequent courts. At page 882, he said:

"The position as I see it is that the exact limits of the ancient remedy by way of certiorari have never been and ought not to be specifically defined. They have varied from time to time being extended to meet changing conditions. At one time the writ only went to an inferior court. Later its ambit was extended to statutory tribunals determining a lis inter partes. Later again it extended to cases where there was no lis in the strict sense of the word but where immediate or subsequent rights of a citizen were affected. The only constant limits throughout were that it was performing a public duty. Private or domestic tribunals have always been outside the scope of certiorari since their authority is derived solely from contract, that is, from the agreement of the parties concerned. [my emphasis]"

28. It is apparent, however, that by 1987 - to use the words of Bingham M.R. in R. v. Jockey Club, ex parte Aga Khan [1993] 1 WLR 909 - judicial review had been extended 'to a body whose birth and constitution owed nothing to any exercise of governmental power but which had been woven into the fabric of public regulation'.

29. That extension had been effected by the Court of Appeal in R. v. Panel on Take-overs and Mergers, ex parte Datafin Plc. [1987] Q.B. 815 when it held that the Panel referred to in the citation was, in principle, amenable to judicial review even though it had not been created by statute or by any exercise of prerogative or governmental power. Donaldson M.R. noted that the Panel had no statutory, prerogative or common law powers. However, he went on to say at page 835:

"The picture which emerges is clear. As an act of government it was decided that, in relation to take-overs, there should be a central self-regulatory body which would be supported and sustained by a periphery of statutory powers and penalties wherever non-statutory powers and penalties were insufficient or non-existent or where E.E.C. requirements called for statutory provisions. No one could have been in the least surprised if the panel had been instituted and operated under the direct authority of statute law, since it operates wholly in the public domain. Its jurisdiction extends throughout the United Kingdom. Its code and rulings apply equally to all who wish to make take-over bids or promote mergers, whether or not they are members of bodies represented on the panel. Its lack of a direct statutory base is a complete anomaly, judged by the experience of other comparable markets world wide. The explanation is that it is an historical "happenstance," to borrow a happy term from across the Atlantic. Prior to the years leading up to the "Big Bang," the City of London prided itself upon being a village community, albeit of an unique kind, which could regulate itself by pressure of professional opinion. As government increasingly accepted the necessity for intervention to prevent fraud, it built on City institutions and mores, supplementing and reinforcing them as appeared necessary. It is a process which is likely to continue, but the position has already been reached in which central government has incorporated the panel into its own regulatory network built up under the Prevention of Fraud (Investments) Act 1958 and allied statutes, such as the Banking Act 1979. This issue is thus whether the historic supervisory jurisdiction of the Queen's courts extends to such a body discharging such functions, including some which are quasi-judicial in their nature, as part of such a system."

30. In saying that government had built on 'City institutions' that had been essentially self-regulatory in nature, the Court recognised that in the modern world executive power may often, for good cause and practical effect, be used to incorporate existing essentially private or domestic bodies into a system of public regulation. As Donaldson M.R. said at the foot of page 838:

"I should be very disappointed if the courts could not recognise the realities of executive power and allowed their vision to be clouded by the subtlety and sometimes complexity of the way in which it can be exerted."

31. In respect of the case now before me, I believe it is clear that in 1996 the Insurance Authority, in fulfilling its statutory mandate to supervise the insurance industry and protect actual or potential policy holders, took steps to weave the Bureau into a regulatory fabric that achieved this end for the greater good of the industry and the public at large. In so doing, the Authority made it mandatory for all new insurers to become members of the Bureau and submit to its judicial or quasi-judicial jurisdiction. As a result, it could not be said that the authority of the Bureau to make awards against its members was derived solely from contract. For those members who have joined since the institution of the scheme it was a condition of their authority to do business that they become members. More telling perhaps, those 'new' members have no right to resign from the Bureau without forfeiting their authority to continue in business.

32. Mr. Collins, who appeared for the Bureau, accepted that at all times material to these proceedings there was in place what he described as 'the beginnings of a public scheme of regulation'. He did not accept, however, that the scheme promoted by the Insurance Authority had evolved to the extent that the Bureau had become woven into the fabric of a public, regulatory scheme as opposed to a private one of concensual self-regulation. That argument, I believe, begs the question: well, when does such a scheme make the transition and how is that transition to be measured? Is it, for example, to be measured by the number of insurers who, in terms of their authorizations to carry on business under the Insurance Companies Ordinance, are constrained to be and remain members of the Bureau? If so, what is an appropriate number, measured as a percentage of total membership? In my judgment, in the circumstances of this matter, such scales of measurement would be simplistic and arbitrary.

33. I do not say that regulatory schemes cannot evolve from the private to the public. In the present matter, however, I am satisfied that once the Insurance Authority made it a condition of authorization that all new members must join and remain with the Bureau and made it apparent that it wished all existing members to remain as members, it then; that is, at that time, incorporated the Bureau into a scheme of regulation contemplated and empowered by statute. In pursuance of that scheme, the Insurance Authority has now ensured that all insurers offering personal insurance are members of the Bureau and are, therefore, bound by the judicial or quasi-judicial functions of the Complaints Board which may make awards against them of up to HK$600,000.

34. Patently, in my view, all 'new' members constrained by the conditions of their authorizations to be members of the Bureau would properly see themselves as being brought into a public scheme. Does that mean that these 'new' members may avail themselves of judicial review but members merely persuaded to join or existing members may not? That cannot be the case. There is no distinction between any of these members in the constitution of the Bureau, the only distinction lies in the date of their joining. While I accept that the present Complaints Board is in every sense a professional body acting in the very best of faith, if I condoned a situation which entitled some members to seek the supervisory jurisdiction of this Court and others not, I believe there would be a danger that Boards may in future exercise their discretion more broadly when they know the member cannot avail itself of judicial review and more narrowly when the member has that right. Mr. Collins argued that the danger of such a 'bifurcation' may be a contemplated theoretical harm but it cannot be a real one. I beg to differ. But whether the contemplated danger may be slight or not, it is one to be avoided and in principle I believe it would be wrong to bring about such an important distinction between members in respect of a body which, it must be remembered, has the primary function of acting as a complaints body.

35. But, of course, the mere fact that a body lacking statutory, prerogative or common law powers, has been incorporated into a scheme of public regulation does not, of itself, mean that it is amenable to judicial review. No single factor is determinative. In this regard, for example, the words of Donaldson M.R. in Datafin supra (page 838E) are illustrative:

"In all the reports it is possible to find enumerations of factors giving rise to the jurisdiction, but it is a fatal error to regard the presence of all those factors as essential or as being exclusive of other factors. Possibly the only essential elements are what can be described as a public element, which can take many different forms, and the exclusion from the jurisdiction of bodies whose sole source of power is a consensual submission to its jurisdiction."

36. Is there then a public element in the present matter; in short, by its incorporation into a regulatory scheme underpinned by the Insurance Companies Ordinance, has the Bureau at all material times been carrying out a public function? I believe it has. I believe it can properly be said that the Insurance Authority from the commencement of the scheme in 1996 determined to ensure that all providers of personal insurance in Hong Kong would fall under the jurisdiction of the Bureau and would therefore - for the assurance of industry standards and the general protection of the public - all be obliged to honour awards made against them by the Bureau's Complaints Board. It was intended and has become a scheme which binds all of Hong Kong's personal insurance businesses and which thereby gives to a broad section of the general public a fast, efficient avenue for redress of complaints. As such, the Bureau has at all material times carried out a public function of conciliation and arbitration, if not as a surrogate of government, at least as an extension of government policy.

37. There is ample authority to say that bodies whose sole source of power is consensual are not subject to judicial review. But while the Bureau may originally have obtained its power solely from the consensus of its members, from 1996 that could no longer be said. Members joining from that time did so because it was a term of their licence to carry on business in Hong Kong. They could not resign and still carry on business. Why? Because that would be a breach of the licence given to them under statute.

38. During the course of submissions I was referred to R. v. Insurance Ombudsman, ex parte Aegon Life Assurance Ltd. [1994] C.O.D. 426 [CO/1609/93], a case which factually has a number of similarities to the one which is the subject of this judgment. The Insurance Ombudsman's Bureau in the United Kingdom was set up by members of the insurance industry; its only powers being those conferred by contract over member companies. The Ombudsman was empowered to determine complaints and disputes related to insurance policies. The Financial Services Act of 1986, which underpinned a number of schemes to resolve disputes in the financial sector, allowed for recognition of the Bureau. Public officers, acting in terms of statute, encouraged insurers to join the Insurance Ombudsman's Bureau but did not make it compulsory. As a result, insurers could join and resign without in any way affecting their right to continue in business. In his judgment, Rose L.J. said:

"Since the Act, as before, the public do not have to use the ombudsman. They can instead sue insurers in the courts. If they go before the ombudsman, because he is not limited to purely legal considerations, in many cases their prospects of success will be better. But they have the choice of forum. Likewise, for insurers, although there are the advantages of Bureau membership to which I have referred, membership is not obligatory ... The IOB's power over its members is, as it seems to me, still, despite the Act, solely derived from contract and it simply cannot be said that it exercises governmental functions. In a nut-shell, even if it can be said that it has now been woven into a governmental system, the source of the IOB's power is still contractual, its decisions are of an arbitrative nature in private law and those decision are not, save very remotely, supported by any public law sanction. In the light of all these factors, the IOB is not in my judgment a body susceptible to judicial review. [my emphasis]

39. In the present case, of course, not all the members of the Bureau have the right to join or leave without ramification. For 'new' members, membership is obligatory. In addition, I believe it may fairly be said that all other members know that should they resign, the Insurance Authority will take steps to rectify the situation. On these grounds, I believe the present case can be distinguished from ex parte Aegon.

40. I am, therefore, satisfied that at all material times the Bureau was a body incorporated into a scheme of government regulation and that, as part of that scheme, it was exercising a public function. The jurisdiction of the Bureau in terms of the scheme, was not founded solely on contract as all members joining after the commencement of the scheme were obliged to do so. Accordingly, I am satisfied that the Bureau is a body amenable to judicial review.

Pacific Century's complaint

41. In considering whether this Court may quash the decision of the Complaints Board, I have been guided by the authoritative principles laid down in Associated Provisional Picture Houses v. Wednesbury Corporation [1948] 1 KB 223, those principles being summarised by Lord Green M.R. at page 233 of the judgment:

"The court is entitled to investigate the action of the local authority with a view to seeing whether they have taken into account matters which they ought not to take into account, or, conversely, have refused to take into account or neglected to take into account matters which they ought to take into account. Once that question is answered in favour of the local authority, it may be still possible to say that, although the local authority have kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it. In such a case, again, I think the court can interfere. The power of the court to interfere in each case is not as an appellate authority to override a decision of the local authority, but as a judicial authority which is concerned, and concerned only, to see whether the local authority have contravened the law by acting in excess of the powers which Parliament has confided in them.

42. In what manner is it therefore alleged that the Complaints Board took into account matters which it ought not to have done or ignored matters which it should have taken into account? Or failing that, that it reached a decision so unreasonable that no reasonable Board could ever have reached it?

43. Mr. Dykes, counsel for Pacific Century, expressed the complaint of the insurer in succinct terms. The Complaint Board, he said, was not entitled to ignore the plain wording of the insurance contract when the contract defined the meaning of 'injury'. It was not entitled to say, as it effectively did, that on a contractual basis the claim must be rejected but that it would give only (at best) secondary consideration to the law of contract. The Board, he said, was not entitled to search for the motive for the original drafting of the definition, make a finding that it must have been to prevent 'sham accident claims' and then conclude that, as there was evidence that this claim was not a sham, the restrictions of the written definition should be ignored and the claim paid. In so doing, said Mr. Dykes, the Board was manifestly applying the wrong principles and making a decision based on wholly ex-contractual principles.

44. In reply, Mr. Collins, for the Board, argued that, in order to achieve the purpose for which it was founded, the Complaints Board was bound to be guided by a more flexible set of criteria than a strict adherence to contract law and must also uphold principles of good insurance practice. That, he said, must have been known to all members who consented to relinquish their strict legal rights in respect of claims of HK$600,000 or less so that the public would be assured that Hong Kong's insurance industry would conduct business with fairness and integrity.

45. In considering the breadth of the jurisdiction of the Complaints Board, it is necessary to look first to the Bureau's Articles of Association which define the Board's constitution and powers.

46. By special resolution passed at an extraordinary general meeting of the Bureau on 28th November 1996, the Articles of Association were amended. When Madam Tsoi took out her policy of insurance, the amended Articles were, therefore, governing the powers of the Board. The only reference to the powers of the Board in the amended Articles appears to come under the heading - 'Procedure for handling complaints' - and reads:

"The Complaints Board shall have the power from time to time to make such rules and practice and procedures regarding the handling of the Complaints as the Complaints Boards may deem appropriate."

47. This does not appear so much to define the criteria which the Board may use in reaching its decisions as give to the Board the power to make its own rules of practice and procedure.

48. Mr. Dykes argued that there was nothing in this text to suggest that members of the Bureau had agreed that, in handling a complaint, the Board was entitled to se aside the law of contract. Indeed, he said, the Articles, as they applied to the Board, indicated that the law of contract would and must be a central issue. The Chairman of the Board was required to be legally qualified and parties had a right to legal representation. Why have lawyers present if the law had only passing relevance?

49. It is interesting to note that the Bureau's original Articles specifically defined the matters to which the Board could have reference in resolving - disputes. In this regard, the original Article 88(c) read:

"in making such award ... [the Board] shall have regard to the terms of the relevant insurance contract, the Statement of General Insurance Practice and Statement of Long-Term Insurance Practice, the general principles of good insurance practice and the rules and regulations provided herein, any applicable rules for law or relevant judicial authority but shall not otherwise be bound by any previous decision of the Complaints Board."

50. Why that was removed from the Articles is not known. Mr. Collins suggested it may, in amending other matters, have been deleted by mistake. That, of course, is speculation. As I understand his argument, however, it was that the original Article clearly defined the criteria which the Board had to take into account if it was to remain true to the objects of the Bureau defined in its Memorandum; namely:

"... to facilitate the satisfaction, settlement or withdrawal of complaints, disputes or claims whether by the making of awards or by such other means as shall seem expedient.

and

To establish and maintain rules between Members themselves, between Members and the Bureau and between Members and the general public with the object that membership of the Bureau shall be recognised as a guarantee of integrity, competence and a high standard of service."

51. I confess I have some sympathy with the submissions of Mr. Collins in this regard. In my judgment, the Memorandum and Articles of the Bureau, even as amended in late 1996, must imply that the Complaints Board is not confined in its decision making to a strict adherence to the Common Law and relevant statute law. If it was so confined, the Board would, for example, have no power to make an award against a member who had indulged in sharp or devious practice that offended the industry's code of conduct.

52. It is pertinent to note, however, that the original Article defining the matters to which the Board could have reference set out first the 'terms of the relevant insurance contract' and, in my opinion, that must manifestly be the case. After all, the insurance industry is founded on agreements reached. There is nothing in that original Article that implies that the Board can go behind the terms of the contract unless, of course, they offend the code of good practice.

53. What then of the code? The papers submitted during the hearing included a document titled: 'Statement of General Insurance Practice and Statement of Long-Term Insurance Practice'. It appears to have been published by the Hong Kong Federation of Insurers. That document demands that insurance contracts be in plain, clear language 'whilst bearing in mind the legal nature of insurance contracts' and, for example, refrains insurers from rejecting claims on grounds of misrepresentation unless it amounts to a deliberate or negligent misrepresentation of a material fact. But I confess I can find nothing in that code to suggest that insurers should go behind the clear wording of a contract and indemnify a policy holder in circumstances where the risk sought to be avoided by the wording has been shown not to exist.

54. During the course of submissions, Mr. Dykes referred me to the terms of reference of the Insurance Ombudsman in the United Kingdom. Those terms of reference are to be found cited in full in R. v. Insurance Ombudsman ex parte Aegon Life Assurance Ltd. supra and read in part as follows:-

"... he shall have regard to the terms of the contract and act in conformity with any applicable rule of law or relevant judicial authority, with general principles of good insurance, investment or marketing practice, with these Terms of Reference, with the Statements of Insurance Practice and Codes of Practice issued from time to time by the Association of British Insurers and with the Rules made from time to time by the Boards of Directors of the Life Assurance and Unit Trust Regulatory Origanisation Ltd and the Investment Management Regulatory Organisation Ltd. Where such good insurance, investment or marketing practice, such Statements, Codes or Rules are inconsistent with any such rule of law or judicial authority and would require the subject matter of the complaint, dispute or claim to be treated in a manner more favourable to the person making it, the relevant practice, Statements, Codes or Rules shall prevail. In determining what are the principles of good insurance, investment or marketing practice the Ombudsman should where he considers it appropriate consult within the Industry." [my emphasis]

55. These terms of reference, said Mr. Dykes, clearly state that codes or rules of good practice shall prevail over rules of law or applicable judicial authority. Such terms may perhaps give the United Kingdom Ombudsman the power to go behind the plain language of a contract in order to improve insurance practice. But he said, there is no comparison between those terms of reference and the ones governing the Bureau's powers, either prior to the amendment of the Articles or after. Similarly, he said, there is nothing in the Hong Kong code of practice to suggest that insurer's should, as a matter of good practice, look to the 'morality' of a claim rather than its applicability under contract.

56. What then would appear to be the reason for the process adopted by the Complaints Board in reaching its decision? From the papers, it appears that the Board has been troubled by the 'injury' definition in many policies of accident insurance. This is revealed in the Bureau's annual reports for 1996 and 1997, the 1996 report containing the following statement:

"The requirement of external bruising or wound as proof of claim for compensation in some personal accident policy is still one of the main causes of complaint. Whilst the Board appreciates that the conditions of this type of policy are not meant to avoid claims but protect insurers from being prejudiced by invalid or fraudulent claims, it is inclined to be sympathetic towards those suffering from genuine injury caused by accidents and supported by medical evidence but without external bruising or wound. The Board would therefore expect a fair and reasonable insurer to look into the circumstances leading to the claimant's injury and if satisfied that an accident has actually occurred, to be willing to pay the claim.

57. With respect to the Complaints Board, it appears here to have settled upon a policy independent of the terms of contract and/or sound insurance practice, a policy that is founded instead on 'sympathy' for claimants who have suffered genuine injury albeit not of the kind allowed for in their insurance policy. Having settled on this policy the Board has then proceeded to incorporate it into its decision making function. It is not for me to say whether the policy is a good one or not; that is a matter for the Bureau and its members. What I am able to say, however, is that I can find no basis upon which the Board could legitimately incorporate such a policy into its function of adjudicating upon current disputes. To that extent it took into account matters it ought not to have done and/or acted unreasonably and its decision must be quashed.

58. In the circumstances, there will be an order of certiorari quashing the decision of the Board and an order of mandamus remitting the matter back to the Board for reconsideration. As for costs, at this juncture, provisionally, I see no reason why the Applicant should not be entitled to its costs and there will, therefore, be an order nisi awarding costs to the applicant, to be taxed if not agreed. The order shall include provision for junior counsel.